“Shoe Dog” by Phil Knight

I recently finished Shoe Dog by Phil Knight. I love memoirs and biographies. When they are combined with business insights, I am particularly interested.

Shoe Dog focuses on the early years of Nike and focuses almost exclusively on the experience of Nike in the 1960s and 1970s before the company went public. The structure of the book is a part of its appeal. Most memoirs take you on long boring slogs through the author’s childhood, teen years and later life. This book focuses almost exclusively on the most exciting time in Phil Knight’s life: when Nike struggled in the 1960s and 1970s to make its mark. He is also remarkably honest about the experience. He discusses all of the problems he faced and the doubts and stress that went along with it. With most business memoirs, you get the sense that the writer had it all figured out from day #1. Phil’s story is different. He is also an amazing writer.

I was born in 1982, so throughout my life Nike has always been one of those brands that was as iconically American as a can of Coca-Cola or a Big Mac from McDonalds. Whether it was Marty McFly’s power laces, or Forrest Gump’s trek across America in the Nike Cortez, Nike has been sewn into the fabric of our culture. I never realized how new Nike was until I read the book. Nike had only gone public two years before I was born and the company wasn’t even called Nike until the 1970s.

The Story

Phil Knight’s story begins in college where he ran track for the legendary Bill Bowerman, who would later become the co-founder of Nike. Phil went on to graduate school at Stanford, where he wrote a paper about how Japanese sneakers could take down German brands, just as the Japanese did the same thing to German camera manufacturers.

Phil took the idea with him as he toured the world after college. During his travel throughout the world, he went to Japan. He met with the executives of a shoe company called Onitsuka. He told them that he represented the Blue Ribbon company and wanted to sell their sneakers (called Tigers) in the United States. He bought $50 worth of sneakers and began selling them out of the back of his Plymouth Valiant.

He continued to sell sneakers but needed a full time job, so he earned his CPA and began working for Price Waterhouse. He also spends some time as a professor of accounting after leaving Price Waterhouse. As the ’60s wore on and the shoe business expanded, he ultimately quits and runs the company full time.

The book takes you through the ups and downs (mostly downs) of running the company. The downs are gut wrenching. The book is as much an inspiration for would be entrepreneurs as it is a cautionary tale about the perils that await those who want to go into business for themselves. Nike had multiple near death experiences, including:

An early brush with death when Onitsuka threatens to end the relationship with Phil Knight when it was just beginning.

Conflicts with an east coast seller of Tigers, a former Marlboro Man living in New York.

Constant conflicts with Onitsuka, including a threatened hostile takeover and threats to use other sellers. Phil fought against this (which was the impetus for creating the Nike line and finding alternative suppliers), but this resulted in a court showdown that could have also potentially destroyed Nike.

Dancing the razor’s edge of leverage throughout the 1970s. Unwilling to take the company public and use equity financing (he was afraid that it would ruin the company culture), Nike’s early growth was fueled almost entirely with debt, leading to terrible cash flow problems. At one point, payroll checks bounce and Nike’s bank threatens to call the FBI because they suspect fraud.

A showdown with US customs. Influenced by lobbying efforts by Nike’s competitors, customs fines Nike $25 million (its annual sales at the time) over customs technicalities. Nike would then have to wage a lobbying war of their own to defeat the injustice.

Through the struggles, Nike and Phil grow. The story of Nike’s growth and the problems it encounters make the book exciting. The story ends with Nike’s public offering in 1980. The following decades are covered at the end, but the focus of the story is almost entirely on Nike’s early development.

Life Lessons

If there is anything to be learned from Phil’s story it is: don’t give into negativity. Things may look dark at times, but it will get you nowhere if you give into negativity and stop trying. There were many times when Phil could have thrown in the towel, but he never gives up no matter how bad his problems are. I suspect a lot of this comes from Phil being a runner. When you are running, you constantly want to stop. Running is about resisting that. Mind over body. Phil takes the same attitude towards business.

Another great lesson of this book: cultivate relationships. You never know where a relationship might lead in the future. One of the most important relationships that Phil developed was with Bill Bowerman. Who could have imagined that his college track coach would help him found one of the greatest American companies of all time? Relationships must be cultivated, because you never know what dividends they might pay in the future.

The Stock

Nike is one of the best performing stocks of all time. Nike is one of those franchise stocks that are extremely hard to identify early on. It’s a Buffett/Munger kind of stock. (Although, Buffett owns Brooks, a Nike competitor, so he would probably disagree with the characterization!)

Nike is one of those firms with an amazing enduring brand and a high return on equity that won’t quit and is seemingly immune to the kind of mean reversion that brings down most high flying businesses (Nike’s return on equity was 27.58% in Q4 2016).

$1,000 invested in Nike stock back in 1981 at the IPO price would be worth $336,046.15 today. Shockingly, that’s even better than Apple. A $1,000 investment in Apple at the IPO price would be worth $274,490 today.